Redesigning Distribution: basic income and stakeholder grants as alternative cornerstones for a more egalitarian capitalism

Transcription

1 Redesigning Distribution: basic income and stakeholder grants as alternative cornerstones for a more egalitarian capitalism The Real Utopias Project Volume V Bruce Ackerman Anne Alstott Philippe Van Parij with contributions by Barbara Bergman Irv Garfinkle, Chien-Chung Huang and Wendy Naidich Julian LeGrand Carole Pateman Guy Standing Stuart White Erik Olin Wright Edited and Introduced by Erik Olin Wright Draft 1.0 May 2003

2 Table of Contents Introduction 1 Erik Olin Wright Part I. Proposals 1 Basic Income : A simple and powerful idea for the 21 st century 4 Philippe van Parijs 2 Why Stakeholding? 40 Bruce Ackerman and Anne Alstott Part II. Commentaries 3 The Citizen s Stake and the Alienation Objection 61 Stuart White 4 Basic Income, Stakeholder Grants, and Class Analysis 75 Erik Olin Wright 5 Democratizing Citizenship: some advantages to Basic Income 83 Carole Pateman 6 Implementing Stakeholder Grants: the British Case 99 Julian LeGrand 7 A Swedish-Style Welfare State or Basic Income? 107 Barbara Bergman 8 The Effects of a Basic Income Guarantee on Poverty and Income Distribution 117 Irv Garfinkle, Chien-Chung Huang, Wendy Naidich 9 CI, COAG and COG: a comment on a debate 142 Guy Standing Part III. Response 10 Basic Income versus Stakeholder Grants: Some afterthoughts on how best to reinvent distribution Philippe van Parijs 158

3 Introduction Erik Olin Wright The conference of The Real Utopias Project that generated the original papers in this book was called Rethinking Redistribution. One of the interesting issues raised in the conference concerned the use of the term redistribution in this title. The expression redistribution suggests that there is something called distribution which exists prior to political interventions and is then transformed by deliberate political action. This corresponds to the conventional rhetoric of economists and politicians: the income distribution generated by markets is the result of voluntary exchanges by freely acting individuals; this spontaneous distribution is then altered by acts of states which coercively take resources away from some people through taxes and transfer them to others. Redistribution reflects coercion; market-generated distribution reflects voluntary activity. This easily slides into the libertarian view that all redistribution is a violation of fundamental freedoms: taxation is theft; people have an absolute moral claim that whatever it is they can obtain from voluntary exchange in markets. There are several things wrong with this image. First of all, there is plenty of coercion within markets themselves, ranging from the near monopoly power of many large corporations, to the coercion embedded in inequalities of information of different actors in markets, to the coercion that comes from some people facing very limited alternatives in their market choices. Secondly, the state plays a pivotal role in establishing the very possibility of markets through the coercive enforcement of property rights that directly impact on the nature of market-generated distributions. And third, in all sorts of ways the state is involved in regulating aspects of market exchanges and production from health and safety rules, to credentialing requirements in many labor markets, to labor laws which impact on the income distribution process. It is therefore misleading to talk about a clear distinction between some pure distribution of income and a process of politically-shaped redistribution. We have thus decided to change the title of the book from the original Rethinking Redistribution to Redesigning Distribution. Income and wealth distributions are the result of the simultaneous, joint operation of voluntary choices of interacting individuals and authoritative rule-making and enforcement by states. The problem is to figure what combination of voluntary choice and authoritative allocation generates the most desirable outcomes, both in terms of efficiency considerations and moral concerns. There was a time, not so long ago, when the issue of the state s positive role in shaping income distribution was at the center of political debate. In Europe, Social Democratic parties argued for the desirability of an activist, affirmative state engaged in policies that would generate income distribution far more egalitarian than those produced through market forces and a passive state. Even in the United States, advocating such a role for the state was part of spectrum of ordinary political debate. In the early 1970s in the United States, in the aftermath of the major expansion of welfare state programs of the previous decade, there was a lively political debate over whether or not a negative income tax should be adopted as a centerpiece of policies designed to alleviate poverty and reduce inequality. In the end the Family Assistance Program, as the proposal was known, was narrowly defeated in the U.S. Congress, and so the existing welfare mechanism of Aid to Families with Dependent Children remained intact. But still, in that debate of 30 years ago

4 Introduction Erik Olin Wright 2 the issue was what sort of state intervention into patterns of income distribution would best serve broader social and economic goals, not whether the state should get out of the business of trying to affect distribution altogether. The intervening three decades have witnessed a massive shift in the ideological coordinates of public policy discussions in the United States and elsewhere. By the early 1990s, particularly in the U.S., defenders of traditional income support policies of the affirmative state were on the defensive and virtually no one in the public debate argued that shaping the income distribution was a worthy political goal. Instead of a political ethos in which the basic well-being of all citizens was seen as part of a collective responsibility, the vision was one in which each person took full personal responsibility for their own well-being. The nearly universal call was to end welfare as we know it, replacing it with a vestigial welfare state that at most would provide a minimal safety net only for those people clearly incapable of taking care of themselves. Times were indeed bleak for progressives committed to an egalitarian conception of social justice. Given this ideological climate, it might seem like an unpropitious time to propose radical strategies for reducing inequality through new programs of income and wealth transfers. Government intervention to generate more egalitarian income distribution is now broadly regarded as antithetical to economic efficiency and thus ultimately self-defeating; there is no vocal political coalition demanding new efforts at egalitarian distribution; and talk of raising taxes and dramatically expanding the activities of the state are seen by most analysts as off the political agenda. The Real Utopias Project is based on the belief that it is important to engage in rigorous analysis of alternative visions of institutional change even when there seems to be little support for such ideas since posing clear designs for alternatives may contribute to creating the conditions in which such support can be built. In this spirit, this volume in the Real Utopias Project examines two provocative proposals for radical redesigns of distributive institutions: Universal Basic Income, as elaborated by Philippe van Parijs, and Stakeholder Grants, as elaborated by Bruce Ackerman and Anne Alstott. While both of these proposals contain a range of complex details, as ideals they are both based on very simple principles: Basic Income. All citizens are given a monthly stipend sufficiently high to provide them with a standard of living above the poverty line. This monthly income is universal rather than meanstested it is given automatically to all citizens regardless of their individual economic circumstances. And it is unconditional receiving the basic income does not depend upon performing any labor services or satisfying other conditions. In this way basic income is like publicly-financed universal health insurance: in a universal health care system, medical care is provided both to citizens who exercise and eat healthy diets and to those who do not. It is not a condition of getting medical care that one be responsible with respect to one s health. Unconditional, universal basic income takes the same stance about basic needs: as a matter of

5 Introduction Erik Olin Wright 3 basic rights, no one should live in poverty in an affluent society. Stakeholder Grants. All citizens, upon reaching the age of early adulthood say 21 receive a substantial one-time lump-sum grant sufficiently large so that all young adults would be significant wealth holders. Ackerman and Alstott propose that this grant be in the vicinity of $80,000 and would be financed by an annual wealth tax of roughly 2%. In the absence of such grants, children of wealthy parents are able to get lump-sum stakes for education, housing, business start-ups, investments, and so on, whereas children of non-wealthy parents are not. This situation fundamentally violates values of equal opportunity. A system of stakeholder grants, they argue expresses a fundamental responsibility: every American has an obligation to contribute to a fair starting point for all. In some ways, basic income and stakeholder grants are not completely different kinds of proposals. After all, if one invests a stakeholder grant in a relatively low-risk investment and waits a number of years, then it will eventually generate a permanent stream of income equivalent to an above-poverty basic income. Similarly, if one continues to work for earnings in the labor market while receiving a basic income and one saves the basic income, after a number of years it will become the equivalent of a stakeholder grant. Nevertheless, the two proposals reflect quite distinct visions of what kind of system of redistribution would be morally and pragmatically optimal in developed market economies. Stakeholder grants emphasize individual responsibility and what is sometimes called starting gate equality of opportunity. Individuals get a stake, and if they blow it on conspicuous consumption rather than long-term plans, then this is their responsibility. Basic income envisions a system of redistribution that permanently guarantees everyone freedom from poverty and a certain kind of lifetime equality of minimal opportunity: the opportunity to withdraw from the labor force to engage in non-remunerated activity. There are, of course, many objections that can be raised against both of these proposals. Some of these objections are moral: basic income rewards people for being parasites; redistributions of wealth illegitimately takes assets away from people who have worked hard to build them up. Others are pragmatic: so many people would withdraw their labor from the labor market if there was a decent basic income that the economy would collapse; the rates of taxation required for basic income will undermine incentives; redistributions of wealth to create stakes will eliminate incentives to save and build up assets. The two core chapters in this book and the series of commentaries which follow attempt to clarify the arguments behind these two proposals and evaluate the cogency of the objections.

6 1 Basic Income : A simple and powerful idea for the 21 st century Philippe Van Parijs Give all citizens a modest, yet unconditional income, and let them top it up at will with income from other sources. This exceedingly simple idea has a surprisingly diverse pedigree. In the course of the last two centuries, it has been independently thought up under a variety of names territorial dividend and state bonus, for example, demogrant and citizen s wage, universal benefit and basic income, in most cases without much success. In the late sixties and early seventies, it enjoyed a sudden popularity in the United States and was even put forward by a presidential candidate, but it was soon shelved and just about forgotten. In the last two decades, however, it has gradually become the subject of an unprecedented and fast expanding public discussion throughout the European Union. Some see it as a crucial remedy for many social ills, including unemployment and poverty. Others denounce it as a crazy, economically flawed, ethically objectionable proposal, to be forgotten as soon as possible, to be dumped once and for all into the dustbin of the history of ideas. To shed light on this debate, I start off saying more about what basic income is and what it is not, and about what distinguishes it from existing guaranteed income schemes. On this background, it will be easier to understand why basic income has recently been attracting so much attention, why resistance can be expected to be tough and how it will eventually be overcome. It is the author's firm conviction that basic income will not be forgotten, and that it must not be dumped. Basic income is one of those few simple ideas that must and will powerfully shape, first the debate, and next the reality, of the new century. 1. WHAT BASIC INCOME IS AND WHAT IT IS NOT A basic income is an income paid by a political community to all its members on an individual basis, without means test or work requirement. This is the definition I shall adopt. It does not fit all actual uses of the English expression basic income, or of its most common translations into other European languages, such as Bürgergeld, allocation universelle, renta básica, reddito di cittadinanza, basisinkomen, or borgerlon. Some of these actual uses are broader : they also cover, for example, benefits whose level is affected by one s household situation or which are administered in the form of tax credits. Other uses are narrower: they also require, for example, that the level of the basic income should match what is required to satisfy basic needs The first version of this paper was prepared for the international seminar Policies and instruments to fight poverty in the European Union: A guaranteed minimum income organised under the aegis of the Portuguese presidency of the European Union (Almancil, Portugal, February 2000). Later versions served as background papers for the VIIIth Congress of the Basic Income European Network (Berlin, Germany, October 2000) and, jointly with a paper by Bruce Ackerman and Anne Alstott for the workshop Rethinking Redistribution (Madison, Wisconsin, May 2002).

7 Chapter 1. Basic Income Philippe van Parijs 5 or that it should replace all other transfers. The aim of the above definition is not to police usage but to clarify arguments. Let us briefly focus on each of its components in turn. (i) An income Paid in cash, rather than in-kind. One can conceive of a benefit that would have all other features of a basic income but be provided in kind, for example in the form of a standardized bundle of food, or the use of a plot of land. Or it could be provided in the form of a special currency with restricted uses, for example food stamps or housing grants, or more broadly consumption in the current period only without any possibility of saving it, as in Jacques Duboin s (1945) distributive economy. A basic income, instead, is provided in cash, without any restriction as to the nature or timing of the consumption or investment it helps fund. In most variants, it supplements, rather than substitutes, existing in-kind transfers such as free education or basic health insurance. Paid on a regular basis, rather than as a one-off endowment. A basic income consists in purchasing power provided at regular intervals, such as a week, a month, a term or a year, depending on the proposal. One can also conceive of a benefit that would have all other features of a basic income but be provided on a one-off basis, for example at the beginning of adult life. This has occasionally been proposed (see Cunliffe & Erreygers 2003), for example long ago by Thomas Paine (1796) and far more recently by Bruce Ackerman and Anne Alstott (1999). There is a significant difference between a regular basic income and such a basic endowment. Yet, it should not be overstated. Firstly, the basic endowment can be invested to generate an actuarially equivalent annual or monthly income up to the recipient s death, which would amount to a regular basic income. If left to the insurance market, the level of this annuity would be negatively affected by the length of a person s life expectancy. Women, for example, would receive a lower annuity than men. However, the advocates of a basic endowment (including Paine and Ackerman and Alstott) usually supplement it with a uniform basic pension from a certain age, which erases most of this difference. Secondly, while other uses can be made of a basic endowment than turning it into an annuity, the resulting difference with a basic income would be essentially annulled if the latter s recipients could freely borrow against their future basic income stream. Even if one wisely protects basic income against seizure by creditors, the security it provides will make it easier for its beneficiaries to take loans at every stage and will thereby reduce the gap between the ranges of options opened, respectively, by a one-off basic endowment and a regular basic income. (ii) Paid by a political community By definition, a basic income is paid by a government of some sort out of publicly controlled resources. But it need not be paid by a Nation-state. Nor does it need to be paid out of redistributive taxation.

8 Chapter 1. Basic Income Philippe van Parijs 6 The Nation-state, beneath and beyond. In most proposals, the basic income is supposed to be paid, and therefore funded, at the level of a Nation-state, as sometimes indicated by the very choice of such labels as state bonus, national dividend or citizen s wage. However, it can in principle also be paid and funded at the level of a politically organised part of a Nation-state, such as a province or a commune. Indeed, the only political unit which has ever introduced a genuine basic income, as defined, is the state of Alaska in the United States (see e.g. Palmer 1997). A basic income can also conceivably be paid by a supra-national political unit. Several proposals have been made at the level of the European Union (see Genet and Van Parijs 1992, Ferry 2000, Van Parijs and Vanderborght 2001) and some also, more speculatively, at the level of the United Nations (see e.g. Kooistra 1994, Barrez 1999, Frankman 2001). Redistribution. The basic income may, but need not, be funded in a specific, ear-marked way. If it is not, it is simply funded along with all other government expenditures out of a common pool of revenues from a variety of sources. Among those who advocated ear-marked funding, most are thinking of a specific tax. Some want it funded out of a land tax or a tax on natural resources (from Thomas Paine (1796) and Joseph Charlier (1848) to Raymond Crotty (1987), Marc Davidson (1995) or James Robertson (1999) for example). Others prefer a specific levy on a very broadly defined income base (for example, Pelzer 1998, 1999) or a massively expanded value-added tax (for example, Duchatelet 1992, 1998). And some of those who are thinking of a worldwide basic income stress the potential of new tax instruments such as Tobin taxes on speculative capital movements (see Bresson 1999) or bit taxes on transfers of information (see Soete & Kamp 1996). Distribution. Redistributive taxation, however, need not be the only source of funding. Alaska s dividend scheme (O'Brien & Olson 1990, Palmer 1997) is funded out of part of the return on a diversified investment fund which the state built up using the royalties on Alaska s vast oil fields. In the same vein, James Meade s (1989, 1993, 1994, 1995) blueprint of a fair and efficient economy comprises a social dividend funded out of the return on publicly owned productive assets. Finally, there has been a whole sequence of proposals to fund a basic income out of money creation, from Major Douglas s Social Credit movement (see Van Trier 1997) and Jacques and Marie-Louise Duboin s (1945, 1985) Mouvement français pour l abondance to the more sophisticated (and more modest) proposals of Joseph Huber (1998, 1999, 2000 with J. Robertson). (iii) To all its members Non-citizens? There can be more or less inclusive conceptions of the membership of a political community. Some, especially among those who prefer the label citizen s income, conceive of membership as restricted to nationals, or citizens in a legal sense. The right to a basic income is then of a piece with the whole package of rights and duties associated with full citizenship, as in

9 Chapter 1. Basic Income Philippe van Parijs 7 the conception of the French philosopher Jean-Marc Ferry (1995, 2000). Most advocates of basic income, however, especially among those who view it as a policy against exclusion, do not want a restrictive entitlement to basic income to further deepen the dualisation of the labour market. They thereofre tend to conceive of membership in a broader sense that tends to include all legal permanent residents. The operational criterion may be, for non-citizens, a minimum length of past residence, or it may simply be provided by the conditions which currently define residence for tax purposes, or some combination of both Children? There can also be a more or less inclusive conception of membership along the age dimension. Some restrict basic income, by definition, to adult members of the population, but then tend to propose it side by side with a universal, i.e. non-means-tested, child benefit system, with a level of benefit that may or may not be differentiated as a (positive or negative) function of the rank of the child or as a (positive) function of the child's age. Others conceive of basic income as an entitlement from the first to the last breath and therefore view it as a full substitute for the child benefit system. The level of the benefit then needs to be independent of the child s family situation, in particular of his or her rank. Some also want it to be the same as for adults, and hence independent of age, as is actually the case in the modest Alaskan dividend scheme and as would be the case under some more generous proposals (for example Miller 1983). But the majority of those who propose an integration of child benefits into the basic income scheme differentiate the latter s level according to age, with the maximum level not being granted until majority, or later. Pensioners? Analogously, some restrict basic income to members of the population which have not reached retirement age and then see it as a natural complement to an individual, non-meanstested, non-contributory basic pension pitched at a higher level, of a sort that already exists in some European countries, like Sweden or the Netherlands. In most proposals, however, the basic income is granted beyond retirement age, either at the same level as for younger adults or at a somewhat higher level. In all cases, this basic income for the elderly can be supplemented by income from public or private contributory pension schemes, as well as from private savings and from employment. Inmates? Even on the most inclusive definition of the relevant notion of membership, any population is still likely to contain some people who will not be paid a basic income. Detaining criminals in prison is far more expensive to the community than paying them a modest basic income, even if full account is taken of any productive work they may be made to perform. Unless the detention turns out to have been ill-founded, it is therefore obvious that prison inmates should lose the benefit of their basic income for the duration of their imprisonment. But they can get it back as soon as they are released. The same may apply to the long-term inmates of other institutions, such as madhouses or old people s homes, to the extent that the full cost of their stay is directly picked up by the community rather than paid for by the inmates themselves. (iv) On an individual basis

10 Chapter 1. Basic Income Philippe van Parijs 8 Paid to each. The basic income is paid to each individual member of the community, rather than to each household taken as a whole, or to its head, as is the case under most existing guaranteed minimum schemes. Uniform. Even if a benefit is paid to each individual, its level could still be affected by the composition of the household. To take account of the fact that the per capita cost of living decreases with the size of the household, existing guaranteed minimum income schemes grant a smaller per capita income to the members of a couple than to a person living alone. A fair and effective operation of such schemes therefore supposes that the administration should have the power to check the living arrangements of their beneficiaries. A basic income, instead, is paid on a strictly individual basis. Not only in the sense that each individual member of the community is a recipient, but also in the sense that how much (s)he receives is independent of what type of household she belongs to. The operation of a basic income scheme therefore dispenses with any control over living arrangements, and it preserves the full advantages of reducing the cost of one s living by sharing one s accommodation with others. Precisely because of its strictly individualistic nature, a basic income tends to remove isolation traps and foster communal life. (v) Without means test Irrespective of income. Relative to existing guaranteed minimum income schemes, the most striking feature of a basic income is no doubt that it is paid, indeed paid at the same level, to rich and poor alike, irrespective of their income level. Under the simplest variant of the existing schemes, a minimum level of income is specified for each type of household (single adult, childless couple, single parent of one child, etc.), the household's total income from other sources is assessed, and the difference between this income and the stipulated minimum is paid to each household as a cash benefit. In this sense, existing schemes operate ex post, on the basis of a prior assessment, be it provisional, of the beneficiaries' income. A basic income scheme, instead, operates ex ante, irrespective of any income test. The benefit is given in full to those whose income exceeds the stipulated minimum no less than to those whose income falls short of it. Nor are any other means taken into account when determining the level of benefit a person is entitled to: neither a person's informal income, nor the help she could claim from relatives, nor the value of her belongings. Taxable "means" may need to be taxed at a higher average rate in order to fund the basic income. But the tax-and-benefit system no longer rests on a dichotomy between two notions of "means": a broad one for the poor, by reference to which benefits are cut, and a narrow one for the better off, by reference to which income tax is levied. Does not make the rich richer. From the fact that rich and poor receive the same basic income, it does not follow, however, that the introduction of a basic income would make both rich and poor richer than before. A basic income needs to be funded.

11 Chapter 1. Basic Income Philippe van Parijs 9 (1) If a basic income were simply added to existing tax-and-benefit systems, it is clear that the comparatively rich would need to pay both for their own basic income and for much of the basic income of the comparatively poor. This would clearly hold if the funding were through a progressive income tax, but would also hold under a flat tax or even a regressive consumption tax. For the ex nihilo introduction of a basic income to work to the financial advantage of the poor, the key condition is simply that, relative to their numbers (not necessarily to their incomes), the relatively rich should contribute more to its funding than the relatively poor. (2) In most proposals, however, the introduction of a basic income is combined with a partial abolition of existing benefits and tax reductions. If the proposed reform simply consisted in spreading more thinly among all citizens the non-contributory benefits currently concentrated on the poor, the latter would clearly lose out. But no one is making such an absurd proposal. In most proposals that rely on direct taxation, the basic income replaces only the bottom part of the noncontributory benefits, but also the exemptions or reduced tax rates on every taxpayer's lower income brackets. The immediate impact on the income distribution can then be kept within fairly narrow bounds for a modest basic income. But the higher its level, the higher the average rate of income tax and therefore the greater the redistribution from the comparatively rich to the comparatively poor. Better for the poor to give to the rich? Thus, giving to all, rich and poor, is nor meant to make things better for the rich. But, for a given level of minimum income, is there anything reason to believe that it is better for the poor than a means-tested guaranteed income? Yes, for at least three interconnected reasons. Firstly, the rate of take up of benefits is likely to be higher under a universal scheme than if a means test is in place. Fewer among the poor will fail to be informed about their entitlements and to avail themselves of the benefits they have a right to. Secondly, there is nothing humiliating about benefits given to all as a matter of citizenship. This cannot be said, even with the least demeaning and intrusive procedures, about benefits reserved for the needy, the destitute, those identified as unable to fend for themselves. From the standpoint of the poor, this may count as an advantage in itself, because of the lesser stigma associated with a universal basic income. It also matters indirectly because of the effect of the stigma on the rate of take up. Thirdly, the regular, reliable payment of the benefit is not interrupted when accepting a job under a basic income scheme, whereas it would be under a standard means-tested scheme. Compared to means-tested schemes guaranteeing the same level of minimum income, this opens up real prospects for poor people who have good reasons not to take risks. This amounts to removing one aspect of the unemployment trap commonly associated with conventional benefit systems, an aspect to which social workers are usually far more sensitive than economists. Makes work pay? The other aspect of the unemployment trap generated by means-tested guaranteed minimum schemes is the one most commonly stressed by economists. It consists in the lack of a significant positive income differential between no work and low-paid work. At the

12 Chapter 1. Basic Income Philippe van Parijs 10 bottom end of the earnings distribution, if each Euro of earnings is offset, or practically offset, or more than offset, by a loss of one Euro in benefits, one does not need to be particularly lazy to turn down a job that would yield such earnings, or to actively look for such jobs. Given the additional costs, travelling time or child care problems involved, one may not be able to afford to work under such circumstances. Moreover, it would generally not make much sense for employers to design and offer such jobs, as people who would be grateful for being sacked are unlikely to constitute a conscientious and reliable work force. A minimum wage legislation may anyway prevent full-time jobs from being offered a wage lower than the income guarantee, in which case the latter consideration only applies to part-time jobs. The replacement of a meanstested guaranteed income by a universal basic income is often presented as a way of tackling this second aspect of the unemployment trap too. If one gave everyone a universal basic income but taxed at 100% the portion of everyone's earnings that does not exceed the minimum guarantee (see for example Salverda 1984), the unemployment trap would be the same, in this respect, as under a means-tested guaranteed minimum income. (See Fig.1 and Fig.3 in the appendix) But if one makes the mild assumption that the explicit tax rate applying to the lowest income brackets must remain noticeably lower than 100%, then the following statement holds. Since you can keep the full amount of your basic income, whether working or not, whether rich or poor, you are bound to be better off when working than out of work. (See Fig. 2 in the appendix) Equivalent to a negative income tax? Note, however, that this second aspect of the unemployment trap can be removed just as effectively, it would seem, by a means-tested scheme that would phase out the benefit less steeply as earnings rise. This is achieved through the socalled negative income tax, a uniform and refundable tax credit. The notion of a negative income tax first appears in the writings of the French economist Augustin Cournot (1838). It was briefly proposed by Milton Friedman (1962) as a way of trimming down the welfare state, and explored in more depth by James Tobin (1965, 1966, 1967, 1968) and his associates as a way of fighting poverty while preserving work incentives. On the background of an explicit tax schedule which taxes no income at 100% and which can be, but need not by definition be, linear, a negative income tax amounts to reducing the income tax liability of every household (of a given composition) by the same fixed magnitude, while paying as a cash benefit the difference between this magnitude and the tax liability whenever this difference is positive. (See Fig. 3 below.) Suppose the fixed magnitude of the tax credit is pitched at the same level as under some basic income scheme under consideration. Someone with no income, and hence no income tax liability will then receive an amount equal to the basic income. As the income rises, the benefit will shrink, as in the case of conventional means-tested schemes, but a slower rate, indeed at a rate that will keep post-and-transfer income at exactly the same level as under the corresponding basic income scheme. (Se Fig. 3 and 4.) The NIT variant simply consists in netting out taxes and benefits. Under a basic income scheme, the revenues needed to fund the NIT's universal tax credit are actually raised and paid back to all. Under NIT, transfers are all one-way only: positive transfers (or negative taxes) for households under the so-called break even point, negative transfers (or positive taxes) for households above. (See Fig. 3.)

13 Chapter 1. Basic Income Philippe van Parijs 11 Cheaper than negative income tax? How much of a real difference there is between the a basic income and a negative income tax depends on further specification of administrative procedures. It shrinks, for example, if taxes are levied at source on a pay-as-you-earn basis (rather than only after tax returns have been processed), or if tax liabilities are assessed on a weekly or monthly, rather than an annual basis, or if everyone is entitled, under a NIT scheme, to an advance payment of the presumptive tax credit (subject to subsequent correction), or if everyone is entitled, under a BI scheme, to get the BI as a tax discount rather than in cash. But even in the closest variant, there remains a difference between a system that operates, by default, "ex ante", and one that operates, by default, "ex post". Any remaining difference would count as an advantage for the basic income variant with respect with the first, uncertainty-linked dimension of the unemployment trap. Yet, with a rudimentary benefit payment technology (coins carried by the postman!) or with a tax collection administration plagued with corruption or inefficiency, the case for the NIT variant, which does away with the back-and-forth of tax money, may be overwhelming. In an era of technological transfers and with a reasonably well run tax administration, on the other hand, the bulk of the administrative cost associated with an effective guaranteed minimum income scheme is the cost of information and control: the expenditure needed to inform all potential beneficiaries about what their entitlements are and to check whether those applying meet the eligibility conditions. In these respects, a universal system is bound to perform better than a means-tested one. As automaticity and reliability increase on both the payment and the collection side, it is therefore, in this administrative sense, increasingly likely to be the cheaper of the two, for a given degree of effectiveness at reaching all the poor. In is for this sort of reason that James Tobin (1997), for example, preferred a universal "demogrant" to its negative-income-tax variant. (vi) Without work requirement Irrespective of present work performance. The right to a guaranteed minimum income is by definition not restricted to those who have worked enough in the past, or paid in enough social security contributions to be entitled to some insurance benefits. From Juan Luis Vives (1526) onwards, however, its earliest variants were often linked to the obligation to perform some toil, whether in the old-fashioned and ill-famed workhouses or in a more varied gamut of contemporary private and public workfare settings. Being unconditional, a basic income sharply contrasts with these forms of guaranteed income intimately linked to guaranteed employment. It also diverges from in-work benefits restricted to households at least one member of which is in paid employment, such as the American Earned Income tax Credit or the UK's more recent Working Families Tax Credit. By virtue of removing the unemployment trap i.e. by providing its net beneficiaries with an incentive to work a basic income (or a negative income tax) can be understood and used as an in-work benefit or a top-up on earnings. But it not restricted to this role. Its unconditionality marks it off from any type of employment subsidy, however broadly conceived.

14 Chapter 1. Basic Income Philippe van Parijs 12 Irrespective of willingness to work. It also marks it off from conventional guaranteed minimum income schemes, which tend to restrict entitlement to those willing to work in some sense. The exact content of this restriction varies a great deal from country to country, indeed sometimes from one local authority to another within the same country. It may involve that one must accept a suitable job if offered, with significant administrative discretion as to what "suitable" may means in terms of location or skill requirements; or that one must give proof of an active interest in finding a job; or that one must accept and respect an "insertion contract", whether connected to paid employment, to training or to some other useful activity. By contrast, a basic income is paid as a matter of right and not under false pretences to homemakers, students, break-takers and permanent tramps. Some intermediate proposals, such as Anthony Atkinson's (1993a, 1993b, 1996, 1998; Vanderborght & Van Parijs 2001) "participation income", impose a broad condition of social contribution, which can be fulfilled by full- or part-time waged employment or self-employment, by education, training or active job search, by home care for infant children or frail elderly people, or by regular voluntary work in a recognised association. The more broadly this condition is to be interpreted, the less of a difference there is with a basic income. 2. WHY DO WE NEED A BASIC INCOME? If we want no means test, it is important to drop the work test. Bringing together the last two unconditionalities discussed the absence of the means test and the absence of the work test makes it possible to briefly formulate the core of what makes basic income particularly relevant under present circumstances. At first sight, there is total independence between these two unconditionalities, between the absence of an income test and the absence of a work test. But the strength of the basic income proposal crucially hinges on their being combined. The abolition of the means test, as we have seen, is intimately linked to the removal of the unemployment trap (in its two main dimensions), and hence to the creation of a potential for offering and accepting low-paid jobs which currently do not exist. But some of these jobs can be lousy, degrading deadend jobs, which should not be promoted. Others are pleasant, enriching stepping-stone jobs, which are worth taking even at low pay because of their intrinsic value or the training they provide. Who can tell the difference? Not legislators or bureaucrats, but the individual workers who can be relied upon to know far more than what is known "at the top" about the countless facets of the job they do or consider taking. They have the knowledge that would enable them to be discriminating, but not always the power to do so, especially if they have poorly valued skills or limited mobility. A work-unconditional basic income endows the weakest with bargaining power in a way a work-conditional guaranteed income does not. Put differently, workunconditionality is a key instrument to prevent means-unconditionality from leading to the expansion of lousy jobs. If there is no means test, no work test is needed. At the same time the work incentives associated by means-unconditionality makes work-conditionality less tempting as a way of

15 Chapter 1. Basic Income Philippe van Parijs 13 alleviating the fear that benefits without a counterpart would nurture an idle underclass. In the absence of a means test, the tax and benefit structure can be expected to be such that beneficiaries can significantly increase their disposable incomes by working, even at a low rate and on a part-time basis, and without being trapped in such jobs once their skills improve or once they can improve their working time. Moving (back) into the work sphere will therefore be facilitated and encouraged, and, for those who fear a dualisation of society into workers and nonworkers, there will therefore be far less of a need to insist on coupling the right to the benefit to some obligation to (be available for) work. To put it (somewhat too) succinctly: Just as workunconditionality prevents means-unconditionality from unacceptably supporting exploitation (which it would do by subsidising unworthy low-paid jobs accepted under the threat of losing the benfit), similarly means-unconditionality prevents work-unconditionality from unacceptably fostering exclusion (which it would do by inviting one to no longer regard as problematic a system that durably disconnects the less productive from any labour participation by effectively killing off low-productive jobs). The two key unconditionalities of basic income are logically independent, but they are intrinsically linked as components of a strong proposal. Activating while liberating. This solidarity between the two unconditionalities underlies the central case for basic income as a specific way of handling the joint challenge of poverty and unemployment. Compared to guaranteed income schemes of the conventional sort, the crucial argument in favour of the desirability of basic income rests on the widely shared view that social justice is not only a matter of right to an income, but also of access to (paid and unpaid) activity. The most effective way of taking care of both the income and the activity dimension consists in maintaining the income transfer (in gross terms) whatever the person s activity, thereby activating benefits, i.e. extending them, beyond forced inactivity, to low-paid activity. It can correctly be objected that there are other schemes such as earned income tax credit or employment subsidies that could serve better, or more cheaply, the objective of securing the viability of low-productive jobs and thereby providing a paid job to the worst off. However, if the concern is not to keep poor people busy at all cost, but rather to provide them with access to meaningful paid activity, the very unconditional nature of a basic income is a crucial advantage: it makes it possible to spread bargaining power so as to enable (as much as is sustainable) the less advantaged to discriminate between attractive or promising and lousy jobs. Basic income and social justice. The preceding argument implicitly appeals to a conception of social justice as the fair distribution of the real freedom to pursue the realisation of one s conception of the good life, whatever it is. It is such a conception that I have developed and defended in my Real Freedom for All (Van Parijs 1995). A handful of alternative principled justifications of basic income have been proposed (see Van Parijs ed 1992) and a large number of pragmatic justifications have been offered for it, as a simple handy second-best for a more complicated ideal package of policy instruments (see e.g. Goodin 1992, Barry 2003). However, I am convinced that any cogent case for basic income as a first-best must adopt some notion of real freedom (not only the right but also the means to do what one may wish) as the

16 Chapter 1. Basic Income Philippe van Parijs 14 distribuendum of social justice and combine it with some strongly egalitarian criterion of distribution. The particular real-libertarian conception I offered gives a key role to the view that the substratum of our real freedom essentially consists in very unequal combinations of gifts we have received throughout our existences, among them the opportunities that enable us to hold our jobs. As a result there are massive employment rents incorporated in our jobs which can and must be (partly) captured through predictable and sustainable revenue-maximising income taxation whose proceeds are to be used to fund a universal and unconditional basic income. The formulation I offer can no doubt be improved (see the critical essays collected in Elkin ed. 1997, Krebs ed and Reeve & Williams eds. 2003, followed by my replies), but I have no doubt that if a first-best case for basic income can be made, it must be some fairly close variant of what I propose. 3. IS A BASIC INCOME AFFORDABLE? An underspecified question. Phrased in this very general way, the question makes no sense. Let us bear in mind that it is not part of the definition of a basic income that it should be sufficient to satisfy the beneficiaries' basic needs: consistently with its definition, the level of the basic income could be more and it could be less. Nor is it part of the definition of a basic income that it should replace all other cash benefits: a universal benefit need not be a single benefit. A meaningful answer can only start being given to the question of affordability if one specifies the level at which the basic income is to be pitched and stipulates which benefits, if any, it is to replace. Under some specifications for example "abolish all existing benefits and redistribute the corresponding revenues in the form of an equal low benefit for all", the answer is trivially yes. Under other specifications for example "keep all existing benefits and supplement them with an equal benefit for all citizens at a level sufficient for a single person to live comfortably", the answer is obviously no. Each of these absurd extreme proposals is sometimes equated, by definition, with basic income. But neither has, to my knowledge, been proposed by anyone. Every serious proposal lies somewhere in between, and whether some basic income proposal is affordable must therefore be assessed case by case. More expensive because work-unconditional? Are there, however, some general reasons why a basic income would not be affordable at a level at which a conventional guaranteed income would? One obvious reason might simply be that a basic income is given to all, whether or not they are willing to work, whereas a conventional guaranteed minimum income is subordinated to a willingness-to-work test. As a result, it is claimed, more poor people will be receiving a basic income than a conventional guaranteed income, or, if the number beneficiaries is not much greater, they will be doing less work than would be the case under a work-conditional benefit system. In net terms, therefore, a basic income scheme is certain to cost more. Job seeker's allowance versus state-sponsored workfare: a dilemma. Closer scrutiny reveals that this expectation rests on feeble grounds indeed. For suppose first that the work test is

17 Chapter 1. Basic Income Philippe van Parijs 15 conceived as an obligation to accept work if offered by some (private or public) employer concerned to get value for money. If the worker has no desire to take or keep the job, her expected and actual productivity is unlikely to be such that the employer will want to hire and keep her. But if the worker is formally available for work, the fact that she is not hired or that she is sacked (owing to too low a productivity, not to anything identifiable as misconduct) cannot disqualify her from a work-tested guaranteed income any more than from an unconditional basic income. The only real difference between the former and the latter is then simply that the former involves a waste of both the employers' and the workers' time. Alternatively, suppose that the work test is conceived as an obligation to accept a fall-back job provided by the state for this very purpose. Rounding up the unemployable and unmotivated is not exactly a recipe for high productivity, and even leaving aside the long-term damage on the morale of the conscripted and on the image of the public sector, the net cost of fitting this recalcitrant human material into the workfare mould might just about manage to remain lower than plain prison, with the cost of supervision and blunder correction overshadowing the work-shy workers' contribution to the national product. The economic case for the work test is just about as strong as the economic case for prisons. Giving to the lazy is cheaper. Thus, as fully recognised by no-nonsense advocates of workfare (e.g. Kaus 1990), if a willingness-to-work condition is to be imposed, it must be justified on moral or political grounds, not on the basis of a flimsy cost argument inspired by the shaky presumption that a benefit coupled with work is necessarily cheaper than the same benefit taken alone. From the fact that workfare is likely to be costlier than welfare, it does not follow that the "unemployable" should be left to rot in their isolation and idleness. There can and must be a way of helping them out of it, namely by creating a suitable structure of incentives and opportunities of a sort a universal basic income aims to help create, whether or not a willingness-to-work test is coupled with it. Setting up such a structure is costly, as we shall shortly see, but adding a work test will not make it any cheaper quite the contrary. And the absence of such a test, therefore, cannot be what jeopardises basic income's affordability. (i) More expensive because income-unconditional? The equivalence of means-tested and universal schemes. Instead of resting on the fact that a basic income is paid to all, whether or not they show any willingness to work, the claim that a basic income is unaffordable invokes even more often the fact that it is paid to rich and poor alike. The earlier discussion of the means test in section 1(v) should have made plain that this allegation is wrong, misled as it is by too superficial a notion of cost. As the comparison of Fig.1 and Fig. 2 shows, it is in principle possible to achieve with a basic income exactly the same relationship between gross and net income as with a conventional guaranteed minimum income. If this relationship is the same, it means that the cost to those taxpayers who net contributors to the scheme is the same in both cases. If one is politically affordable, therefore, the other should be too. If the relationship is the same, it also means that the marginal tax on earnings at any level